Eurozone flash core HICP rises faster-than-expected: Here what it means for EUR/USD?

Eurozone preliminary Harmonized Index of Consumer Prices (HICP) data for May has come in at 3.2% Year-on-year (YoY), as expected, higher than the April reading of 3%. In the same period, the core HICP – which excludes volatile components like food, energy, alcohol, and tobacco – arrives at 2.5%, higher than 2.4% estimates and the previous reading of 2.2%. On a monthly basis, the headline and the core HICP rose moderately by 0.1% and 0.3% respectively.

The Euro (EUR) appears to have reacted negatively to the Eurozone flash inflation data for May, which has accelerated on an annualized basis, but has cooled down significantly Month-on-Month (MoM). As of writing, EUR/USD drops to near 1.1640, but is still marginally up from Monday’s closing price at 1.1631.

What do high Eurozone core HICP data means for Euro?

While, the Eurozone headline HICP data was anticipated to accelerate as energy prices have remained elevated due to the restricted energy flow through the Strait of Hormuz, faster-than-expected core HICP growth is expected to prompt expectations for an interest rate hike by the European Central Bank (ECB) in its policy meeting this month.

An improvement in the likelihood of an interest rate hike by the ECB bodes well for the Euro.

Lately, various ECB officials have highlighted the need to tighten monetary conditions in the near term to contain escalating inflation expectations.

Technical Analysis: EUR/USD remains sideways for almost three weeks

EUR/USD trades marginally higher at around 1.1641 at press time. The pair holds a mildly bearish near-term bias as the upside remains capped by the 20-day exponential moving average (EMA), which is at 1.1656.

The Relative Strength Index (RSI) at 46.7 sits just below the neutral 50 line, hinting at a lack of strong upside momentum and reinforcing the notion of a corrective, rather than impulsive, tone.

On the topside, immediate resistance is located at the 20-day EMA around 1.1656, and a daily close above this barrier would be needed to ease downside pressure and open the door for a more meaningful recovery towards the May 29 high at 1.1685. Looking down, the pair could slide towards 1.1500 if it breaks an almost three-week-long consolidation on the downside below the May 21 low at 1.1576.

(The technical analysis of this story was written with the help of an AI tool.)